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Against the background of rational choice theory, this chapter provides an overview of the behavioral sub-disciplines informing behavioral law and economics—including judgment and decision-making studies, parts of social psychology, moral psychology, experimental game theory, and behavioral ethics. The chapter discusses deviations from cognitive and motivational rationality, including studies of people’s moral judgments. It begins with probability assessments and related issues. It critically describes phenomena related to prospect theory, phenomena associated with motivated reasoning and egocentrism, and those related to reference-dependence. It also summarizes studies of bounded willpower. Some attention is given to studies that show that most people do not share the consequentialist outlook that prioritizes the maximization of human welfare over all other values. Finally, the chapter discusses several issues that cut across various phenomena: individual differences in judgment and decision-making; the significance of professional training, experience, and expertise; deciding for others; group decision-making; cultural differences; and debiasing.

Chapter 1 provides an overview of loss aversion. After a historical account, it describes the experimental and empirical findings that demonstrate loss aversion and elucidate its relationships to more specific phenomena, such as the status quo bias and omission bias, endowment effect, escalation of commitment, and bounded ethicality. The chapter also reviews studies of the relationship between loss aversion and emotions; the neural basis of loss aversion; and hypotheses about its evolutionary roots. It examines what happens when competing and multiple reference points exist, and highlights the generality of reference-dependence in people’s perceptions and judgments. It also examines the effect of professional experience and group decision-making on loss aversion, and reviews attempts to “debias” loss aversion. It mentions other theories that share the notion that losses loom larger than gains, and discusses critiques of prospect theory. Finally, it points to the impact that loss aversion has had on several disciplines.

This chapter discusses the rich behavioral research on judicial decision-making. It opens with general theories of the cognitive process of judicial decision-making, focusing on the story model and coherence-based reasoning. It examines how various heuristics and biases—such as the compromise and contrast effects, hindsight bias, omission bias, and anchoring—are reflected in judicial decision-making. Special attention is given to the limited ability of fact-finders to disregard inadmissible evidence, the interactions between race and judicial decision-making, the role of non-consequentialist moral judgments in judicial decision-making, and the impact of the choice between rules and standards on the predictability of judgments. Finally, the chapter discusses two fundamental questions in the behavioral analysis of judicial decision-making: group decision-making, and decision-making by judges (as opposed to laypersons).

This chapter describes how tort law deploys the concepts of duty and scope of liability (proximate cause) to limit civil liability. Some of these limits overlap with psychological principles; others are at odds with them. The lack of a general duty to rescue others from harm converges with omission bias, the psychological tendency to see acts as more blameworthy than failures to act. The foreseeability of specific types of harms that could result from an action is a key element in assessing the scope of liability, also in line with psychology. In contrast, people highly value emotional tranquility and close personal relationships, yet tort law places strict constraints on recovery for emotional harm.

This chapter addresses the psychological significance of ownership and possession and explores how people perceive them. It shows that an individual’s notion of possession is not necessarily physical but may extend to intangible entitlements and expectations. This state of affairs may support a broadening of the law’s understanding of possession. In addition, the chapter analyzes the relative strength of ownership and possession, which is highly relevant to conflicts between owners and possessors, including the doctrines of first possession and adverse possession. The chapter also employs psychological insights to justify seemingly paradoxical legal rules, according to which owners have more freedom to use their property intensively than to refrain from using it at all, more freedom to restrict the transfer of property totally than to subject it to conditions, and more freedom to destroy the property than to modify or change it.